nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒04‒30
fourteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Are Corporate Codes of Ethics and Risk Assessment by Internal Auditors Associated with Sustainability Audits by Internal Auditors? By Steven DeSimone; Mohammad Abdolmohammadi
  2. VAT and Agriculture: Lessons from Europe By Sijbren Cnossen
  3. Une gouvernance fondée sur une utopie de l'échange By Michel Baupin
  4. Интегрираното отчитане – ново предизвикателство в корпоративното Отчитане By Atanasov, Atanas; Marinova, Rumyana
  5. Sweat Equity in U.S. Private Business By Anmol Bhandari; Ellen R. McGrattan
  6. Internal Audit and Financial Reporting Quality in the Public Sector By Steven DeSimone
  7. Managerial Risk Aversion and Accounting Conservatism By Larmande, François; Stolowy, Hervé
  8. Corporate governance, tax evasion and business cycles By Gilbert Mbaraa; Ryszard Kokoszczyński
  9. The Functioning and Accounting of Musharakah Financing in Participation Banks and Firms; Problems and Recommendations By Dinc, Yusuf
  10. The effects of official and unofficial information on tax compliance By Filomena Garcia; Luca David Opromolla; Andrea Vezzulli; Rafael Marques
  11. Revision of the Consumption Activity Index to Address the 2008 SNA and Improve Accuracy By Akihiro Kanafuji; Rina Mandokoro; Naoya Kato; Tomohiro Sugo
  12. Управленски аспекти на счетоводната обезценка на търговската репутация By Atanasov, Atanas
  13. A European Net Wealth Tax By Alexander Krenek; Margit Schratzenstaller
  14. Accounting Noise and the Pricing of Cocos By Derksen, Mike; Spreij, Peter; van Wijnbergen, Sweder

  1. By: Steven DeSimone (Department of Economics and Accounting, College of the Holy Cross); Mohammad Abdolmohammadi (Bentley University)
    Abstract: An increasing number of organizations engage in sustainability reporting to the public. However, assurance of this disclosure is relatively new. In this study we investigate corporate codes of ethics and risk assessment by internal auditors as correlates of organizations’ engaging their internal audit functions (IAFs) in sustainability audits. Using data from a large sample of chief audit executives (CAEs) we find significant and positive associations between code of conduct and risk assessment and sustainability audits by IAFs. Also, we find positive and significant association between industry (environmetnally sensitive vs. others), CAE experience, and CAE major (accounting vs. others) and sustainability audts by IAFs. Other control variables (organization size, CAE grad/undergrad degrees, and CAEcpe do not indicate significanance in their association with sustainability audits by IAFs. These results have implications for design of sustainability reporting by various organizations and assurance of such reporting by internal auditors.
    Keywords: sustainability audits, internal auditing code of conduct, risk assessment
    Date: 2018–04
  2. By: Sijbren Cnossen (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: Little has been written about the treatment of agriculture under the value added tax (VAT). This article attempts to fill the void by surveying and evaluating the situation in the Member States of the European Union (EU) and some other countries. Farmers are often exempted from VAT for administrative and political reasons. But this means that the VAT on their inputs cannot be ‘washed out’ through the tax deduction/credit mechanism. It then has to be borne by the farmers themselves or becomes an indeterminate and capricious element in consumer prices. To compensate farmers for the uncompensated VAT on inputs, the EU has devised a flat-rate scheme that permits them to charge a presumptive rate (approximately equal to the effective VAT rate on sector-wide inputs) on their sales to taxable agro-processing firms which, in turn, are permitted to take a deduction for this flat-rate addition from the VAT on their sales. Obviously, the flat-rate scheme is an arbitrary way of trying to achieve equal treatment between exempt and taxable farmers and between exempt farm products and other taxable goods and services. Full taxation, subject to the general threshold, appears to be the preferred choice.
    JEL: H22 H25
    Date: 2017–01
  3. By: Michel Baupin (NIMEC - Normandie Innovation Marché Entreprise Consommation - UNICAEN - Université de Caen Normandie - NU - Normandie Université - ULH - Université Le Havre Normandie - NU - Normandie Université - URN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - URN - Université de Rouen Normandie - NU - Normandie Université)
    Abstract: Pour un dépassement des visions comptables actionnariale et partenariale Michel BAUPIN Chercheur associé au NIMEC (Normandie Innovation Marché Entreprise Consommation)-IAE – Université de Caen Basse-Normandie (14) RÉSUMÉ. Dans cette communication, nous tentons d'apprécier la pertinence des deux visions de la gouvernance de l'entreprise qui influencent la manière de concevoir la comptabilité, la relation entre la comptabilité et la gouvernance étant fondée sur la recherche par celle-ci de l'efficience organisationnelle. La vision actionnariale répond à la théorie du « propriétaire » selon laquelle l'entreprise représente ses propriétaires et n'a pas d'autonomie propre, l'objet de la comptabilité étant d'établir des comptes en vue de comparer les valeurs que sont les revenus, les coûts et leur solde appelé « résultat » qui n'a de sens qu'à l'égard des propriétaires qui en sont les bénéficiaires. A l'opposé, la vision partenariale répond à la théorie de l'« entité » selon laquelle les comptes sont envisagés sous l'angle de la séparation de l'entreprise et de ses propriétaires qui sont alors considérés comme de simples créanciers (Geschäftstheorie). Le capital apporté doit alors être géré car il représente un « coût », notion qui débouche sur une véritable mutation managériale. Nous proposons la construction d'une utopie de l'enregistrement comptable de l'acte d'échange qui donne à la gouvernance la possibilité d'inscrire le fonctionnement de l'entreprise dans une dynamique favorable aux actionnaires, aux salariés et aux clients. MOTS-CLÉS : valeur d'échange, création de valeur, échange valeur pour valeur, gouvernance, utopie, rente, coût du capital, théorie du propriétaire, théorie de l'entité, théorie de l'agence. ABSTRACT. In this communication, we are trying to appreciate the relevance of two visions of corporate governance that influence how to conceive accounting, the relationship between both of them is based on research by the latter's organizational efficiency. The shareholder's vision answers to the "ownership" theory that the company represents his owners and does not have self autonomy, the purpose of accounting is then to establish accounts in order to compare values which are incomes, costs and their balance called "result" which meaning only exists in respect of the shareholders who are beneficiaries for it. In contrast, the partnership's vision responds to the "entity" theory that the accounts are discussed in the context of the separation between the company and its shareholders who are then treated as mere creditors in the same way as other lenders (Geschäftstheorie). As a consequence, the injected capital must be managed because it represents a "cost", a concept that leads to a real mutation in managerial activities. We consider the issue of accounting theory in terms of the act of exchange, clarifiying in this way the notion of governance.
    Keywords: node markets, patrimonal fiction, positive theory of accounting, agency theory, entity theory, ownership theory, cost of capital,exchange value, value creation, annuity, gouvernance, échange valeur pour valeur, création de valeur,valeur d’échange, utopie, rente, coût du capital, théorie du propriétaire, théorie de l’entité, théorie de l’agence
    Date: 2016–05–17
  4. By: Atanasov, Atanas; Marinova, Rumyana
    Abstract: Issues relating to the sustainable development of enterprises and the transparency of their financial statements become more relevant for their management and external users of information. Conventional (traditional) financial statements prepared based on applicable accounting standards are mainly aimed at external users of information and presents the main financial aspects of the business. We share the view that despite the increased demand for non-financial information benefits associated with its disclosure of some stakeholders look long-term and hard to accurately translating into quantifiable units, while short-term costs are visible and easily measurable. Some companies, though generally recognize the benefits of reporting nonfinancial information, are reluctant to actively pursuing policies in this area because of this belief. Stated objectives of integrated reporting very positive both from the point of view on and from the viewpoint potential stakeholders. We believe that the meaning of the introduction of integrated reporting should always be sought in the study of the benefits and effects on consumers and markets on the one hand and the costs of introducing them - on the other. Furthermore, we believe that the reporting of non-financial information should necessarily be linked to the development of a unified system of indicators in specific areas disclosure to be applied to enhance the comparability and the analytical quality of the information disclosed.
    Keywords: Integrated reporting, non-financial information, IFIR, GRI
    JEL: M0 M41
    Date: 2017–07
  5. By: Anmol Bhandari; Ellen R. McGrattan
    Abstract: In this paper, we first provide evidence that existing measures of business incomes and valuations based on widely-used surveys such as the Survey of Consumer Finances are mismeasured. We then develop a theory disciplined by U.S. national accounts and business census data to measure net incomes and private business sweat equity—which is the value of time to build customer bases, client lists, and other intangible assets. We estimate an aggregate sweat equity value of 0.65 times GDP, with little cross-sectional dispersion in valuations when compared to business net incomes and large cross-sectional dispersion in rates of return. Our estimate of sweat equity is close to the estimate of marketable fixed assets used in production by private businesses, implying a high ratio of intangible to total assets. We use the model to evaluate the impact of greater tax compliance of private businesses and lower tax rates on the net income of both privately held and publicly traded businesses. We find larger sectoral and aggregate effects from the tax policy experiments relative to studies that abstract from private business and, in particular, the accumulation of sweat capital. Finally, we show that our results are robust to including non-pecuniary benefits of business ownership.
    JEL: E13 E22 H25
    Date: 2018–04
  6. By: Steven DeSimone (Department of Economics and Accounting, College of the Holy Cross)
    Abstract: Using a unique set of hand-collected data, this study investigates the association of (1) the presence of an Internal Audit Function (IAF) and (2) the use of quality assurance programs for the IAF with financial reporting quality in public sector organizations. Specifically, I examine if the presence of IAFs and the use of quality assessments therein is associated with the presence of financial statement audit reportable conditions and restatements in municipalities in the U.S. Results indicate that both the presence of an IAF and use of external quality programs therein are positively associated with financial statement audit reportable conditions related to internal control (significant deficiencies). Findings also suggest that the presence of an IAF is negatively associated with restatements in U.S. municipalities with populations over 100,000 at significant levels. The use of quality assurance programs for the IAF has no effect on the occurrence of restatements. The study’s findings provide insights on IAF influence over financial statement reporting quality in the public sector and suggest further research is necessary. Results should be of interest to standard setters, regulators, and pubic-sector leadership as they attempt to improve governmental financial reporting quality and transparency.
    Keywords: Internal auditing, internal audit quality, external assessments, financial reporting quality, audit reportable conditions, restatements
    Date: 2018–04
  7. By: Larmande, François; Stolowy, Hervé
    Abstract: This paper investigates the link between one managerial characteristic, the degree of risk aversion, and accounting conservatism. Two models are analyzed, one where the degree of conservatism is chosen by the principal (Board) and accounting information is used for stewardship, and a second where the principal delegates the choice of the degree of conservatism to the manager and accounting information is primarily used for investment efficiency. We show in the first model that higher risk aversion reduces the demand for conservatism from a stewardship point of view. In the second model, we show that delegation is an optimal way for the principal of committing to conservative reporting. Hiring a more risk-averse manager lowers the cost of implementing this conservative reporting. The two models provide opposite predictions for the association between managerial risk aversion and the degree of conservatism. Empirical evidence favors the second model’s prediction. The paper suggests that managers with specific characteristics and incentive contracts might be endogenously chosen by the firm to implement an ex-ante optimal degree of conservatism.
    Keywords: Accounting Conservatism; Risk Aversion; Limited Liability; Reporting Bias; Principal-Agent Theory; Stewardship; Investment Efficiency
    JEL: D82 D86 G30 M41 M51 M52
    Date: 2017–06–01
  8. By: Gilbert Mbaraa (Faculty of Economic Sciences, University of Warsaw); Ryszard Kokoszczyński (Faculty of Economic Sciences, University of Warsaw, Narodowy Bank Polski)
    Abstract: We develop an agency model of corporate tax evasion and auditing by a residual claimant government and embed it to a macroeconomic environment characterised by credit constraints. In our economy, tax auditing by the government reduces the information asymmetry between lenders and entrepreneurs with an investment opportunity. Corporate governance quality consequently affects macroeconomic variables; with changes in tax rates, auditing and quality of corporate governance having aggregate effects. We show that changes in the revenue system; tax and audit rates, can directly affect asset prices and inflate the effects of exogenous shocks to the economy.
    Keywords: corporate governance, credit constraints, taxation, asset pricing, tax evasion, agency problem
    JEL: H2 H26 H3 E13 E26 J81
    Date: 2018
  9. By: Dinc, Yusuf
    Abstract: Main income source of participation banks is loans. Participation banks keep the loans they generate in their balance sheet and distribute the income generated by these loans into participation pools and into their equity. The loan processes of participation banks are unique and not evaluated enough for literature. Musharakah financing as a unique financing model of non-interest financial institutions is currently in the foreground. Describing the process of musharakah financing is important to understand the difference between conventional and participation banks. This research evaluates the process of musharakah financing of participation banks for the first time. Accounting of musharakah and the problems are also included in the research. Moreover, with this research, it is included in the results that there is no difference between accounting of normal loans and musharakah financing.
    Keywords: Musharakah, accounting, Islamic banking, Islamic finance
    JEL: G21
    Date: 2017–02–10
  10. By: Filomena Garcia (Indiana University, & UECE); Luca David Opromolla (Banco de Portugal, CEPR, CESifo, & UECE); Andrea Vezzulli (University of Insubria); Rafael Marques (ISEG-School of Economics and Management)
    Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham-Sandmo-Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects.
    Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Effects
    JEL: H26 D63 C24 C92 Z13
    Date: 2018–04
  11. By: Akihiro Kanafuji (Bank of Japan); Rina Mandokoro (Bank of Japan); Naoya Kato (Bank of Japan); Tomohiro Sugo (Bank of Japan)
    Abstract: In this paper, we explain revisions made to the Consumption Activity Index (CAI) compilation methodology. The revisions aim to address those made to the System of National Accounts in Japan (SNA) which consists of the introduction of the 2008 SNA, a new international statistical standard for National Accounts, as well as the benchmark year revision. First, we update the weights of goods and services in accordance with the revised National Accounts. In calculating these weights, we adopt a methodology based on the Input-Output Table for Japan, instead of one based on demand-side statistics which had been adopted to date. Second, we change the compilation method for durable goods, automobiles and household electrical appliances, and incorporate new source statistics for non-durable goods such as tobacco and services such as financial services, thus improving the accuracy of the index. Owing to these revisions, the revised CAI is consistent with the current Annual Report of National Accounts (ARNA), while maintaining the merits of the original CAI. In addition, the discrepancy between private consumption in the ARNA and those by type as well as the CAI itself decreased.
    Keywords: private consumption; business cycles
    JEL: E21 E32
    Date: 2018–04–20
  12. By: Atanasov, Atanas
    Abstract: Редица автори формулират сред основните детерминанти при признаване на счетоводна обезценка на репутацията качеството на корпоративното управление и частните мотиви на изпълнителните директори и главните мениджъри на компаниите. Съществуват достатъчно емпирични изследвания, които показват, че връзката между размера на признатата репутация и размера на бонусите на мениджмънта е значима. Съществуващата методика за обезценка на репутацията, показва, че в значителна степен тестът за обезценка е базиран на различни управленски решения и очаквания, свързани с функционирането на предприятието след бизнескомбинацията, което води до възможности за манипулиране на тестовете за обезценка на репутацията, а от тук и на финансовите резултати от дейността на предприятието като цяло. English Abstract: Many authors formulate the quality of corporate governance and the private motives of executive directors and chief executives of companies as the main determinants in recognizing accounting impairment of goodwill. There is enough empirical research to show that there is a significant relationship between the amount of recognized goodwill and the amount of management bonuses. The current methodology for impairment of goodwill shows that, to a significant extent, the impairment test is based on various management decisions and expectations related to the operation of the entity after the business combination, which leads to opportunities to manipulate the impairment tests of goodwill and the financial performance of the enterprise as a whole.
    Keywords: goodwill impairment, management decisions, earnings management
    JEL: M41 M48
    Date: 2017
  13. By: Alexander Krenek; Margit Schratzenstaller (WIFO)
    Abstract: The increase of wealth inequality in many EU countries has spurred interest in wealth taxation. While taxes on wealth for a long time have played only a marginal role in the public finance and taxation literature, more recently a variety of arguments are brought forward in favour of (higher) wealth taxation. At the same time, tax competition has led to an almost complete disappearance of recurrent net wealth taxes in Europe. By dealing with non- and under-reporting in the Household and Consumption Survey (HFCS) data set provided by the European Central Bank, we are able to estimate the wealth distribution within 20 EU countries and the revenue potential of a progressive EU-wide net wealth tax.
    Keywords: F55, H24, H87
    Date: 2018–04–15
  14. By: Derksen, Mike; Spreij, Peter; van Wijnbergen, Sweder
    Abstract: Contingent Convertible bonds (CoCos) are debt instruments that convert into equity or are written down in times of distress. Existing pricing models assume conversion triggers based on market prices and on the assumption that markets can always observe all relevant firm information. But all Cocos issued sofar have triggers based on accounting ratios and/or regulatory intervention. We incorporate that markets receive information through noisy accounting reports issued at discrete intervals, which allows us to distinguish between market and accounting values, and between automatic triggers and regulator-mandated conversions. Our second contribution is to incorporate that coupon payments are contingent too: their payment is conditional on the maxumum Distributable Amount not being exceeded. We examine the impact of CoCo design parameters, asset volatility and accounting noise on the price of a CoCo; and investigate the interaction between CoCo design features, the capital structure of the issuing bank and their implications for risk taking and investment incentives. Finally, we use our model to explain the crash in coco prices after Deutsche Bank's profit warning february 2016.
    Keywords: accounting noise; Coco design; Coco triggers; Contingent capital pricing; Investment incentives; risk taking incentives
    JEL: G12 G13 G18 G21 G28 G32
    Date: 2018–04

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